Responsible politics can cure capitalism’s ills

Editor’s note: This article originally appeared in The New York Times’ Room for Debate in response to the question: Was Marx right? While Marx’s prediction of our political future was finally discredited with the fall of communism, is his view of our economic future being validated?

Charles Dickens was at the height of his fame in 1849 when Karl Marx moved to London. London itself was one of Dickens’s best developed characters — its filth and its poverty and its disease, byproducts of industrialization. As Marx trudged to and from his workspace at the British Museum every day, he witnessed a city that might make even the most ardent capitalist question whether wages could rise above the subsistence level.

Though it is not hard to see why Marx believed that the free enterprise system required the exploitation of workers, it is hard to see why anyone would believe that today. In 1970, 26.8 percent of the world’s population lived on less than one dollar per day. In 2006, only 5.4 percent did — an 80 percent drop in this extreme poverty measure in less than four decades.

What economic system was responsible for this accomplishment? It wasn’t “from each according to his ability, to each according to his needs.” It was free enterprise. Far from exploiting workers, free enterprise liberated them from deep poverty.

Marx was a brilliant thinker and writer, but economists who have meticulously studied his writings easily find its flaws. An obvious one is central to his theory, that the value of an object is determined by the labor required to produce it. This is obviously false: I could spend hundreds of hours writing a song; Bruce Springsteen could write one in 15 minutes worth far more than mine. Q.E.D.

But as devastatingly wrong as Marx was about the most important questions he tried to tackle (see also: “Union, Soviet”), Marx was right about quite a bit. There is an inherent instability in capitalism — cycles of boom and bust lead to human misery. Capitalism does create income and wealth inequality.

Our tough times now heighten our sensitivity to asymmetries, making Marx’s observations particularly poignant. Wages are stagnant, while corporate profits are high. Millions knock on doors looking for jobs with no success, while the economy’s superstars take home seven-figure salaries. Political candidates debate the marginal tax rate on the highest earners while ignoring the unemployed.

But these problems don’t mean capitalism will inevitably unravel, as Marx thought.

First, many of today’s problems are temporary results of the Great Recession. And on a deeper level, Marx erred significantly in believing that social relations and social institutions are founded upon economics. We are not slaves to changes in the way goods and services are produced and exchanged.

Likewise, the flipside of communism is mistaken: The economy is not a holy, untouchable, object.

In fact, both Marxism and pure laissez-faire elevate the economy above its proper station, ignoring the ability (Marxism) and the duty (laissez-faire) of culture, and through it politics, to soften the rough edges of the free enterprise system.

The social safety net for the truly needy is the example of how culture and politics can correct the excesses of the free enterprise system. We let the free enterprise system create wealth and give people the freedom to pursue their dreams and to flourish, while letting culture direct the fruits of the market to proper social ends. Finding the right balance is the hard work of responsible politics.

At the close of the Constitutional Convention, Benjamin Franklin walked out of Independence Hall and into the streets of Philadelphia. A lady saw him, and asked, “Well, doctor, what have we got — a republic or a monarchy?” “A republic,” Franklin replied, “if you can keep it.”

Was Karl Marx right that capitalism contains within it the seeds of its own destruction? Only if we can’t keep it.

Michael R. Strain is a resident scholar at the American Enterprise Institute.